Tanzania’s Domestic Economy: A Billion Dollar Question

Tanzania has made significant strides in improving its local content policies, but the country still lags behind in other sectors. The nascent oil and gas sector, for instance, continues to enjoy tax incentives that have deprived the government of billions of shillings.

The Financial Impact

A recent report estimated that Tanzania is losing revenues of between $847 million and $1.3 billion a year from a mix of tax evasion, tax incentives, and capital flight. This loss has become a key political issue in Tanzania, with citizens demanding more transparency and accountability from their government.

The Report’s Findings

The report, “The One Billion Dollar Question: How Can Tanzania Stop Losing So Much Tax Revenue?”, was published by the Tanzania Episcopal Conference, National Muslim Council of Tanzania, and Christian Council of Tanzania. The report followed another in 2008, which focused on gold mining and estimated that Tanzania had lost at least $265 million in recent years from excessively low royalty rates, tax incentives, and tax evasion.

Government Recommendations

To address this issue, the government has been urged to take several steps:

Ensure that all multinational companies, including those in the EPZs/SEZs, are importing and exporting goods at arm’s length values
Increase the capacity of the TRA’s International Tax Unit to address transfer pricing
Make mechanisms available to counter multinational company practices of hedging and thin capitalization

Additional Recommendations

The government has also been urged to:

Enhance the process and speed of publishing Mineral Development Agreements
Ensure that all provisions of the TEITI are implemented
Ensure automatic exchange of information between the TMAA and the TRA

In addition, the report recommends that the government use some of the extra revenues generated from increased tax collections to significantly deepen social protection systems across the country, covering all citizens. The report also urges the government to take greater steps to align various programs in place and reduce fragmentation, including by finalizing the National Social Protection Framework.

Conclusion

The issue of lost revenues has become a key political issue in Tanzania, with citizens demanding more transparency and accountability from their government. It is hoped that the implementation of these recommendations will help to address this issue and ensure that Tanzania’s domestic economy is better managed for the benefit of all Tanzanians.